Systematic Investment Plan:
What Is systematic investment plan (SIP) and How it works?
Systematic Investment Plan (SIP) is a financial planning tool that helps to become financially stable by investing some amount of money in regular intervals, over a certain period of time. SIP allows you to invest small periodic amounts than huge amounts. The time of investment is usually weekly, monthly or quarterly. SIP is best choice for investors who are less familiar with financial markets.
How Systematic Investment Plan (SIP) Works:
SIP is smart idea that converts small investments to large sum of money in fixed span of time. SIP (Systematic Investment Plan) is smart mode investing money in mutual funds. SIP follows pre-planned approach for your regular payments into mutual fund, trading accounts or retirement’s accounts.
How this is beneficial:
SIP is flexible plan that manages you investments perfectly; Money is automatically debited from your account to concerned investment scheme. In this process you’re issued units as per market trend or net asset value. You can get additional units in falling market and fewer units when market is high. SIP keeps your investments safe from market fluctuations.
The best option in SIP is Rupee-cost averaging. As markets are volatile, investors will be waiting for the best time to enter in market. Rupee-Cost Averaging makes your investments always profitable. As regular SIP investor your money collects more units when market is low and lesser when market is high. Rupee-cost averaging allows you achieve lower average cost per unit.
Power of Compounding: Another best advantage with SIP is computing. The main rule of compounding is early to start the investing, more time your money has to grow.
Another best thing in SIP is successful investments. Through SIP you have to commit for regular investments. It makes to you become financially stable.
How to Invest through Systematic Investment Plan: It is easy way of investing. It just needs your submit enrollment form and cheque that has to be deposited on date requested by the mutual fund.
Flexible Plans: SIP investments are flexible, investor has right to discontinue the plan at any time or can minimize or maximize investing amount.
Long Term Gains: Rupee-cost averaging and power compounding of Systematic Investment Plan delivers potential results in long term investment than short-term.
How to Become a SIP (Systematic Investment Plan) investor:
It is very easy become a Systematic Investment Plan investor. You just need a plan and small amount of money to invest in mutual funds. SIP investor has to buy the points that you allocated on certain date every month. The investment amount and selection of mutual fund scheme will be of your choice. In SIP investment will can minimize or maximize depending on investor. And investor has option to buy extra units on market fall and fewer units when market is high. Once you start investment at regular periods, Systematic Investment Plan will issue units for you at NET Asset Value (NAV). Units may vary every month depend on market and NAV ((Net asset value or Book Value).
Investment process through Systematic Investment Plan is different from method that followed by other mutual fund schemes. In other Mutual Funds if you’re buying units of fund when NAV is high and market is high.
What happens when the market fall?
You have to wait till market raise for returning investment. But investment through Systematic Investment Plan helps you play safe game in all circumstances. As a regular investor you will be buying units regularly, so you won’t make mistake of buying units at peak rates. Investing money at constant interval will give more profit than one time investment.
Every Scheme has its own drawback even SIP has some:
- SIP returns are lower in consistently volatile markets.
- In SIP, if your running short of money and your unable to pay any installment, there no possibility to postpone the payment. One thing you should do is to stop SIP which is very tough.
- SIP doesn’t suit for people who have unpredictable cash flow.
- In SIP scheme you can only invest predetermined amount of sum, even if have to invest more sum due market trend, it’s not possible in SIP.
Bottom Line : Even though SIP has above drawbacks it is one of THE BEST Investment Option for Long term investor and first time investors.